It is easy to forget that the idea of investing in the entire market was passive and scientifically once heresy. However, listeners learn quickly through conversations with David Booth’s Larry Siegel. Financial thinking exchangeIt was this extremely heretical heresy that has defeated the investment industry in the last 40 years.
Booth, co-founder of Dimensional Fund Advisors (DFA), did not attempt to change the world. In fact, he left the academy precisely for him. I didn’t do it I want to be a man who wants to invent a new theory. His talents have been applying breakthroughs others have already made. That insight has been with his time in the University of Chicago hall surrounded by future Nobel laureates, and has begun to move in a movement that redefines how the portfolio is built, the market is understood and the investors are offered.
As the CFA Institute Research Foundation Celebrating the 60th anniversaryBooth’s story serves as a powerful reminder that rigorous and applied research can be achieved. The financial revolution that he helped catalyze – rooted in empirical evidence, academic collaboration and deep respect for the market – reflects the Research Foundation’s mission to advance the frontier of investment knowledge.
Booth’s conversation with Siegel illustrates how research not only informs theory, but also shapes industry, builds institutions, and transforms investor outcomes. With the help of AI tools, we summarize some of the important topics. However, consider this as a preview. There’s more to it, from early brushes with Milton Friedman at the booth to behind the scenes stories about building DFA and navigating decades of market change. Listen to the full story: Part I and Part II.
All changed data
In the mid-1960s, the world of finance was undergoing a paradigm shift. For the first time, thanks to advances in computing and the newly available dataset from the Security Pricing Research Center (CRSP), researchers were able to empirically test investment ideas. Booth, a doctoral student under Eugene Fama and a classmate of Roger Ibo Botson, saw the myth of consistent manager’s outperformance began to crumble under statistical scrutiny.
Most investors didn’t know what the market returned, let alone how to beat it. Many were shocked when early data surveys showed that stocks historically distributed more than 9% per year. The institution’s trust department was not able to come nearby. Active managers have been exposed. “We were all of a sudden in science,” Booth said. “We were able to test what worked and what didn’t work.”
And what went wrong? Most industries.
This rapid upheaval is not only a criticism of aggressive management, but also a roadmap for better investment methods: embracing the market, avoiding unnecessary costs, and being flexible. Under the influence of pioneers like Fisher Black and Myron Shoals, Booth’s work at Wells Fargo gave him a front row seat to the birth of index investment. But he also saw its drawbacks: mechanical stiffness, inefficient trading, and missed opportunities. “These are the Wild Times, and new ideas have been born everywhere.”
So when Booth launched DFA at Rex Sinquefield in 1981, they rethinked how to access it rather than simply recreate the market.
The DFA breakthrough was building a widely diversified portfolio, especially in undervalued segments like small caps, but don’t be enslaved to the index. Use data to derive structures and use judgement to trade intelligently. Booth called it “discipline and flexibility.” This is a philosophy rooted in academic evidence but tempered by market practicality.
This was the birth of factor investment, but the term did not exist at the time. Academic research (Rolf Banz, Fama, French for Small Cap Premium) provided the basis. DFA built its portfolio around size, value, and profitability long before these terms became industry buzzwords. Booth and Sinkfield weren’t following Alpha. They were building access to the dimensions of risk that were shown to be important.
A brutal beginning
Still, it was brutal in the early days. The small caps were far below the larger caps until the 1980s. DFA’s flagship fund delayed the S&P 500 hundreds of basis points a year. Most businesses would have been folded. I didn’t do DFA. why? Because their beliefs were not rooted in gambling. It was based on theory and data. “How do you survive?” Booth asked. “You go back to the foundations. You believe in diversification. You believe in the market.”
Then came the second biggest public: the advisor channel. It will quietly rebuild the industry from scratch. But to hear how it unfolds and who made it move, you need to listen to the podcast.
Asked for advice to young professionals, Booth provided a framework. Accept uncertainty, find a comparative advantage, and build what you want to own if it works. He sees a great opportunity for financial advice, especially as technology reduces the cost of personalization. “People don’t want robot advice,” he said. “They want to be asked. They want someone to help them connect their lives to money.”
Booth’s story is a case study of how research applied with confidence and creativity can construct lasting value. CFA Institute Research and Policy Center marks the 60-year research foundation, 80 years Financial Analyst Journal – This conversation is a timely reminder of what the mission actually looks like. Lessons may be rooted in the past, but it cannot be denied the association with investors, advisors and entrepreneurs today.
The best part? There’s still a little more in the Booth story. Listen to the complete conversation for this non-conclusion personality, turning points, cuff off-cuff moments.
